MWC analysis: Conditions are ripe for cloud providers to drive faster network services.

Big challenges don’t usually suddenly explode on the scene. There are little symptoms, warning signs that signal developing issues. One place to look for them is a trade show, because there are a lot of buyers and sellers collected in one place. The Mobile World Congress (MWC) that just ended is a good example, because it validated some little signals that networking might be facing a big challenge.

• Back in 2007, Australia created a National Broadband Network (NBN) as a national infrastructure project because access infrastructure was too expensive to support competition and reasonable consumer prices. At MWC, Telecom Italia said that retail pricing pressure and exploding data consumption meant it was “facing a perfect storm.”  Ericsson said that the 200 operators in Europe need to consolidate significantly in order to be financially efficient and stable.
• Last year, because consumer willingness to pay for broadband hasn’t grown and their appetite for bandwidth has exploded, European Union operators have asked the union to approve subsidies to them from big tech. Stories spread through MWC that the EU favored the subsidies, called the fair share. An EU regulator suggested that fair-share policies were essential to assure gigabit connectivity by 2030. 
• Mobile operators, long the profit stars of carrier services, are looking for a revenue boost or cost reduction. At MWC, Telefonica announced a partnership with Microsoft to support an API program called Open Gateway that the GSMA announced as a means of raising new revenues and perhaps avoid subsidies.
• Equipment vendors’ earnings from service provides have been dropping. At MWC, Nokia’s announced rebranding created a buzz, because it includes less emphasis on service provider networks and more on enterprise networks.  But over the last 20 years, the portion of enterprise network budgets that represent new spending to achieve new benefits has dipped from almost half to about 10%.

These are not the signs of a healthy industry. Remember the story of the little Dutch boy who stuck his finger in a hole in the dike and saved the country from a flood? Well, we’re seeing, in all these data points, the signs of a real problem in networking, a lot of leaks in the dike of its business model. Where are the fingers? 

Cost management isn’t the answer. All the easy opportunities have been picked, and it will soon be impossible as all cost excesses are wrung out. The EU operators who want subsidies know further cost management won’t save them. Enterprises have been constraining network spending for two decades.  But new revenues and benefits can come only if customers want to pay more for network service and enterprises can find new productivity benefits to justify network spending.

Connectivity isn’t that needed something; experiences and new information relationships with users are the only answer. And why is nobody building those information relationships to create new benefits and generate new revenues? Ask a good Wall Street analyst that question, and you’ll hear them say socks.

No, not “socks”, but SOX, the abbreviation for Sarbanes-Oxley, a law passed in the wake of the dot-com bubble to prevent Wall Street from kiting the value of tech companies by promising extravagant future revenues. SOX focuses stock performance on the current quarter or current year, not beyond. Since companies are obligated to their shareholders, that means that they focus their R&D and marketing on stuff that will make their next quarterly financial announcement look rosy. Creating a new information relationship with consumers and workers to justify more network spending will simply take too long.

Network operators need a new revenue plan.

The good news is that MWC proved that the network operators, at least, are starting to realize that they need a new business strategy, based on something above the network. All that API focus we mentioned relates to their desire to get software developers engaged in creating long-term information relationship value.

The bad news is that the API focus of MWC was aimed mostly at exposing providers’ OSS/BSS features to developers or exploiting things like knowing device location, things that given the GPS in smartphones could be as easily exploited by a cloud provider or even a smartphone vendor. It’s a one-speed bike to a market that wants and needs a flying car. The good news within the bad news is that these MWC API stories at least demonstrate that the future of the network, both for service providers and enterprises, lies in creating a partnership between connectivity and hosted features and applications. But realizing any network benefit from that good news still has to break two barriers.

The first barrier is that of circular dependency. We don’t have applications that create those new information relationships. We don’t have the architectural elements in place to create them, that provide hosting capabilities, connectivity, and so forth. Absent the applications, there’s no motivation to create the platform architectures, and absent those architectures there’s no way to create the applications.

The second barrier is that of value of the network role. If all the network does is carry the traffic of these new information relationships, then the applications only create more pressure on network providers. Think social media. But for network operators and network vendors to gain from the new information relationships, they’ll have to become part of creating the information, not just carrying it.

What was missing from MWC was any idea of how to address these barriers. The only novel service concept that got any play was the metaverse, and the focus there was on virtual reality. It’s hard to see how that would help network operators, network services, or equipment vendors, because all the network would do is deliver stuff…again. 

What, then, and who, might break down the barriers? Think of the challenge of building a skyscraper. Starting from the basement means you have no idea what’s supposed to be up there toward the observation deck. Starting with the observation deck, you have no idea what’s supporting you. But start in the middle and you can see a bit of the top and the foundation. Cloud providers are the logical source of the middleware that would have to be the foundation of new information-to-user relationships. If that happens, they’ll not only block operator paths to higher revenues, they’ll also absorb more and more of enterprise network features.

If I were a cloud provider, I’d set a dozen of my best software architects to the task of defining what that Next Great Information Relationship looked like for both consumers and enterprises, and a giant team of developers to build the cloud platform-as-a-service that would support it. I’d find a room in my skyscraper basement to connect to the operators’ GSMA APIs to keep them happy and occupied, while I stole the keys to the kingdom.  Then I wouldn’t just be putting my fingers in holes in the market dike, I’d be putting them in the pocket of the market and grabbing what could be nearly a trillion-dollar wallet. They may be doing just that, and that’s the lesson of MWC.